WEBVTT - Goldman’s Jonny Fine Sees Bond Issuance Rush Extending 0:00:17.880 --> 0:00:20.600 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:20.680 --> 0:00:23.200 My name is James Crombie. I'm a senior editor with Bloomberg. 0:00:23.840 --> 0:00:26.040 This week, we're very pleased to welcome Johnny Fine, global 0:00:26.040 --> 0:00:28.720 head of investment grade Debt at Goldman Sachs. How are you, Johnny, 0:00:28.840 --> 0:00:30.960 I'm great, Thanks for having me, appreciate you joining us. 0:00:30.960 --> 0:00:32.239 So we're very excited to have you on the show 0:00:32.280 --> 0:00:39.640 and to get your thoughts on all things credit and weightlifting, sportslifting, powerlifting, cookery, 0:00:39.760 --> 0:00:42.600 all that stuff. Also devices to welcome back Arnold Kakuda 0:00:42.640 --> 0:00:44.519 with Bloomberg Intelligence. Great to see you and. 0:00:44.560 --> 0:00:46.120 Arnold, Oh, thanks for having me again. 0:00:46.400 --> 0:00:48.320 So just to set the scene a bit here, borrowers 0:00:48.479 --> 0:00:50.960 have been raising money at a furious pace this year, 0:00:51.000 --> 0:00:55.200 setting records across unibonds, leveraged finance, asset backed securities, and 0:00:55.320 --> 0:00:57.840 investment grade. A lot of that has been to refinance 0:00:57.920 --> 0:01:01.360 debt coming due or reprice existing foracilities, and it's not 0:01:01.400 --> 0:01:04.640 confined to publicly traded bonds and loan markets. Private debt 0:01:04.720 --> 0:01:07.360 and direct lending and asset based finance have also been 0:01:07.400 --> 0:01:11.160 going gangbusters. Investors are clearly keen. The FED has started 0:01:11.160 --> 0:01:14.200 cutting rates the expectation is for lower coupons ahead. And 0:01:14.240 --> 0:01:16.680 while spreads are very tight, all in, yields on high 0:01:16.680 --> 0:01:19.199 grade US corporate bonds are still close to five percent, 0:01:19.280 --> 0:01:22.520 so pretty attractive compared to history. Buyers seem to have 0:01:22.520 --> 0:01:24.160 a ton of cash, a lot of it sitting in 0:01:24.240 --> 0:01:28.320 short term money market accounts. Fun Flows have been extremely positive. 0:01:28.640 --> 0:01:32.679 That's made new issue concessions very tight negative in some 0:01:32.720 --> 0:01:36.560 cases last week. Also, a pretty bullish economic outlook is 0:01:36.600 --> 0:01:39.520 becoming the consensus, and that's supporting the buying that we're seeing. 0:01:39.560 --> 0:01:42.240 So I just want to bring you in, Johnny. I mean, 0:01:42.280 --> 0:01:44.960 I get the demand side, but on the supply side, 0:01:44.959 --> 0:01:48.880 why the rush where the extreme push right now? Why 0:01:48.880 --> 0:01:51.360 not wait till things get cheaper when the FED really 0:01:51.360 --> 0:01:52.120 does start cutting. 0:01:52.680 --> 0:01:53.240 Well, there's a. 0:01:53.200 --> 0:01:57.320 Lot to unpack there. So within that intro, I think 0:01:57.360 --> 0:02:01.200 emailed everything, but with one exception. And the one exception 0:02:01.480 --> 0:02:04.080 I think is when you said the expectation is that 0:02:04.200 --> 0:02:06.320 coupons are going to move lower, because I don't think 0:02:06.320 --> 0:02:11.320 that's the case at all. We've seen term yields probably 0:02:11.360 --> 0:02:14.679 at their low point, call it late August, early September, 0:02:14.720 --> 0:02:17.840 after the volatility, after the unwind of the end carry trade. 0:02:17.880 --> 0:02:20.519 After the oh my goodness, the Fed's behind the curve. 0:02:20.520 --> 0:02:22.400 They're going to have to do some emergency cuts to 0:02:22.440 --> 0:02:25.320 play catch up. And we hit what maybe three seventy 0:02:25.360 --> 0:02:27.960 three seventy five in tens then, and we're now back 0:02:28.000 --> 0:02:33.680 at four point fifteen today. Where term yields are is 0:02:33.720 --> 0:02:38.240 a function of not simply us beginning a cutting cycle, 0:02:38.840 --> 0:02:41.400 but really how deep and how fast that cutting cycle is. 0:02:42.240 --> 0:02:47.120 And there's been an incredibly robust relationship all year between 0:02:47.160 --> 0:02:50.360 where the market expects the FED funds rate to be 0:02:50.400 --> 0:02:52.440 in a couple three years time, So call that a 0:02:52.520 --> 0:02:56.000 proxy for the terminal rate, a very robust relationship between 0:02:56.080 --> 0:02:59.600 that number and tenure yields. In fact, you take that 0:02:59.680 --> 0:03:02.680 number and add seventy five basis points, you get ten 0:03:02.760 --> 0:03:06.320 year yields. Today that terminal rate a couple years out 0:03:06.400 --> 0:03:11.320 early twenty twenty six, there are thereabouts is three forty. 0:03:11.480 --> 0:03:14.760 Add seventy five basis points four point fifteen. That's where 0:03:14.840 --> 0:03:15.280 tens are. 0:03:15.680 --> 0:03:18.240 And that relationship has been so robust, and as the 0:03:18.280 --> 0:03:21.880 market has digested that, and as issuers have digested that, 0:03:22.480 --> 0:03:26.400 they thought about financing in a risk paradigm where you know, 0:03:26.800 --> 0:03:29.320 we may get rate cuts, But there's not necessarily going 0:03:29.360 --> 0:03:32.560 to be the case the term yields are going to 0:03:32.600 --> 0:03:34.280 move lower in lockstep. 0:03:34.400 --> 0:03:34.920 Far from it. 0:03:36.040 --> 0:03:38.560 So the original question that you posed to me before 0:03:38.600 --> 0:03:41.000 I went off at a complete tangent and addressed something 0:03:41.000 --> 0:03:45.440 else was why the rush and the rush really began 0:03:45.840 --> 0:03:47.480 in the first half of the year. And it was 0:03:47.560 --> 0:03:49.680 pretty clear and pretty evident to us all that we 0:03:49.680 --> 0:03:51.480 were going to have a very robust first half of 0:03:51.520 --> 0:03:56.200 the year, really driven by a corporate issuers desire to 0:03:56.400 --> 0:03:59.720 de risk and de risking ahead of more than fifty 0:03:59.720 --> 0:04:02.120 percent of the people will occupy this planet and live 0:04:02.120 --> 0:04:05.000 in democratic countries going through the polls, and that's a 0:04:05.080 --> 0:04:08.440 clear and visible risk. You never know where these elections 0:04:08.440 --> 0:04:10.000 are going to end up. You never know what kind 0:04:10.040 --> 0:04:14.000 of volatility they might introduce. But if you're sitting there 0:04:14.040 --> 0:04:15.920 and looking at you're financing needs over the course of 0:04:15.960 --> 0:04:19.160 the next twelve months and you see one, then you're 0:04:19.200 --> 0:04:22.080 probably not going to sit there and think, hey, I'm 0:04:22.080 --> 0:04:25.080 going to wait till October. You're going to finance early. 0:04:25.160 --> 0:04:27.640 You're going to get ahead of that. And by the way, 0:04:27.640 --> 0:04:29.919 at the beginning of the year, we had a heavily 0:04:30.160 --> 0:04:34.120 sharply inverted yield curve. When you have a heavily sharply 0:04:34.240 --> 0:04:38.040 inverted yield curve, the cost of carry of warehousing long 0:04:38.120 --> 0:04:41.800 term debt for a corporate is zero or in some 0:04:41.880 --> 0:04:44.719 cases actually negative and in naturally in a lot of cases. 0:04:44.760 --> 0:04:47.200 In March of this year, I think the number was 0:04:47.240 --> 0:04:52.279 something like sixty percent of all investment grade borrowers could 0:04:52.279 --> 0:04:55.719 issue ten year debt and park the proceeds in six 0:04:55.760 --> 0:04:59.520 month treasury bills and earn a positive carry. Now I'm 0:04:59.520 --> 0:05:02.080 not saying that how corporates manage their balance sheet to 0:05:02.120 --> 0:05:05.320 try and earn that incremental return, but if you're looking 0:05:05.320 --> 0:05:07.400 to de risk, if you're worried about what the back 0:05:07.440 --> 0:05:09.279 end of the year might look like, you see that 0:05:09.400 --> 0:05:13.360 environment presented in front of you, you're kind of incentivized 0:05:13.400 --> 0:05:17.360 to finance early. And that's really what drove the first 0:05:17.400 --> 0:05:20.640 six months of the year. Now, we expected come the 0:05:20.680 --> 0:05:23.680 summer that things would start to tape off and we'd 0:05:23.680 --> 0:05:26.040 have a much quieter run into the end of the year, 0:05:26.080 --> 0:05:28.640 and that's actually not been the case. We've actually continued 0:05:28.680 --> 0:05:32.400 at a frenetic pace. And that pace has continued because 0:05:32.440 --> 0:05:35.599 of a very sharp compression in credits breads, and so 0:05:35.680 --> 0:05:40.039 credit spreads at the tightest levels we've seen since they 0:05:40.080 --> 0:05:43.200 think two thousand and five now in the IG index. 0:05:43.760 --> 0:05:46.000 And anytime you get a financing environment where you get 0:05:46.040 --> 0:05:49.159 incredibly tight spreads and as you mentioned James at the top, 0:05:49.720 --> 0:05:52.960 very low or negative or zero new issue concessions, there'll 0:05:53.000 --> 0:05:56.159 be supply. And that's they think what's populated the market 0:05:56.200 --> 0:05:59.200 over the course of the last several months. And there's 0:05:59.240 --> 0:06:02.000 really not been a pre election slow down as yet. 0:06:02.040 --> 0:06:06.240 There's not been a pre election burst of volatility, and 0:06:06.279 --> 0:06:09.560 there's not been a pre election burst of illiquidity in 0:06:09.600 --> 0:06:12.760 the market as well, so conditions remain really robust. 0:06:13.640 --> 0:06:15.120 Got no, if I can step in here, this is 0:06:15.240 --> 0:06:20.039 Arnold Coakuda Bloomberg Intelligence covering banking financials from the credit side. 0:06:20.240 --> 0:06:23.680 So Johnny, you know, like I covered the banking financials 0:06:23.760 --> 0:06:26.440 the a lot of the management teams have talked about 0:06:26.480 --> 0:06:29.120 maybe this is a pull forward right of demand for 0:06:29.320 --> 0:06:31.680 from maybe from next year and stuff like that. So 0:06:31.760 --> 0:06:33.600 is that how you see it? Right? You talked about 0:06:33.800 --> 0:06:35.680 someone was supposed to slow down, but no, we haven't 0:06:35.680 --> 0:06:38.480 seen that. No, really bouts of illiquidity and stuff like that. 0:06:39.480 --> 0:06:41.120 You know, are you gonna call it a pull forward 0:06:41.200 --> 0:06:44.240 or not, or this is this everything looks fine until 0:06:44.320 --> 0:06:46.400 kind of bonuses are paid and we'll see what happens 0:06:46.400 --> 0:06:47.600 with twenty twenty by next year. 0:06:48.240 --> 0:06:50.160 Well, I think the first six months of the year 0:06:50.160 --> 0:06:52.520 was clearly a pull forward or a significant component of 0:06:52.560 --> 0:06:56.200 the financing that we saw was a pull forward. But 0:06:56.240 --> 0:07:01.480 there's also been real growth as well and real economic activity. 0:07:01.880 --> 0:07:04.359 You kind of think about supply that we've seen in 0:07:04.400 --> 0:07:06.240 the energy sector, a lot of that's related to m 0:07:06.279 --> 0:07:08.800 and a supply that we've seen in the utility sector 0:07:09.240 --> 0:07:13.360 that's been related to capex. There's been growth on bank 0:07:13.400 --> 0:07:17.480 balance sheets and that's required a pretty substantial amount of 0:07:17.520 --> 0:07:20.920 bank funding. As we think about how this year has evolved, 0:07:21.080 --> 0:07:24.040 there's been a lot of international financing in the dollar 0:07:24.120 --> 0:07:28.040 market as well, so there's plenty of growth to finance 0:07:28.240 --> 0:07:32.640 as well. I would say that what we're seeing right 0:07:32.720 --> 0:07:35.840 now I don't think is necessarily a pull forward of 0:07:35.880 --> 0:07:38.800 twenty twenty five activity. I think what we'll see post 0:07:38.800 --> 0:07:43.040 election is if conditions remain as they are now, I 0:07:43.080 --> 0:07:46.200 think will then start to see a pull forward of 0:07:46.240 --> 0:07:49.960 twenty twenty five financing plans. And I think in particular 0:07:50.040 --> 0:07:55.040 the frequent finances bank and finance, both domestically and internationally. 0:07:55.560 --> 0:07:56.760 But if you're asking me. 0:07:57.720 --> 0:08:01.520 Does the supply that we've seen this year mean that 0:08:01.560 --> 0:08:04.440 we're going to have a down year next year? I 0:08:04.480 --> 0:08:06.880 think the answer is no. When I look at the 0:08:06.880 --> 0:08:09.520 market for next year, there's a trillion and a half 0:08:09.520 --> 0:08:11.600 dollars that's going to come back to investment grade bond 0:08:11.640 --> 0:08:14.040 investors from one point two trillion of redemptions and three 0:08:14.080 --> 0:08:17.000 hundred billion of coupon payments plus minus, just in the 0:08:17.120 --> 0:08:22.040 US market. I don't believe anywhere near that all of 0:08:22.080 --> 0:08:25.520 that has been pre financed, And actually kind of when 0:08:25.520 --> 0:08:28.240 you kind of think about the staggering sum that that represents, 0:08:28.280 --> 0:08:30.720 and sure, we'll finish this year with the second busiest 0:08:30.800 --> 0:08:33.880 year ever in US investment grade, the second busiest year 0:08:33.920 --> 0:08:38.280 ever in global financing, and similar characteristics in left fin 0:08:38.840 --> 0:08:41.040 If we finish this year in usig at one point 0:08:41.080 --> 0:08:44.839 six trillion, next year, we've got to print one point 0:08:44.840 --> 0:08:46.640 five trillion just for the market to kind of wash 0:08:46.679 --> 0:08:51.839 its face. So I'm not anywhere near thinking that next 0:08:51.880 --> 0:08:53.199 year is going to be a down year. I think 0:08:53.240 --> 0:08:54.719 it's going to be just as robust as this. 0:08:54.720 --> 0:08:57.360 Year has been, got it, So you heard that twenty 0:08:57.360 --> 0:09:00.920 twenty five still going to be pretty busy, so you know, yeah, great, great, 0:09:00.960 --> 0:09:02.960 And then just you talked about this a little bit 0:09:03.080 --> 0:09:05.560 in terms of the constituents, right, you talked about you know, 0:09:05.559 --> 0:09:08.439 the frequent financers coming and stuff like that. But also 0:09:08.840 --> 0:09:11.760 on these management calls we've been hearing about, you know, 0:09:11.920 --> 0:09:13.840 M and A has been rebounding and stuff like that, 0:09:13.920 --> 0:09:16.199 and maybe you know, maybe you know, we need some 0:09:16.320 --> 0:09:18.600 change and some of the regulators and stuff like that. 0:09:18.679 --> 0:09:21.760 But where does kind of the M and A financing 0:09:21.840 --> 0:09:23.480 start coming in? Are we going to start seeing more 0:09:23.520 --> 0:09:26.160 and more of that you think next year? And you know, 0:09:26.200 --> 0:09:29.080 for those who look at this financials versus non financials, 0:09:29.320 --> 0:09:30.480 you know, how should we think about that? 0:09:30.920 --> 0:09:33.760 Yeah, So there's some misconceptions when it comes to M 0:09:33.760 --> 0:09:36.079 and A and its impact on financing markets because a 0:09:36.080 --> 0:09:38.000 lot of people look at M and A over a 0:09:38.000 --> 0:09:39.959 long cycle and they kind of the numbers up and 0:09:39.960 --> 0:09:43.560 obviously it's significantly lower than it was obviously in twenty 0:09:43.679 --> 0:09:46.720 twenty one, and it's actually significantly lower than it was 0:09:46.880 --> 0:09:48.280 in or lower than it was. 0:09:48.240 --> 0:09:49.440 In like eighteen and nineteen. 0:09:49.480 --> 0:09:54.040 For example, and that's because M and A captures all 0:09:54.120 --> 0:09:58.720 sorts of different types of activity in the market overall. 0:09:58.920 --> 0:10:03.040 What we care about INIG obviously we care about the 0:10:03.040 --> 0:10:05.160 broad M and A machine because that makes our company 0:10:05.160 --> 0:10:07.360 more valuable. But when we kind of think about M 0:10:07.400 --> 0:10:11.839 and A from an IG perspective, we care about corporate 0:10:12.000 --> 0:10:16.120 to corporate acquisitions with a significant or all cash component 0:10:16.160 --> 0:10:19.440 to them. And when you look at that time series 0:10:19.720 --> 0:10:23.400 over a long period of time, it's actually been fairly stable. 0:10:23.920 --> 0:10:25.800 When people talk about there being a big rebound in 0:10:25.920 --> 0:10:27.679 M and A, they're really talking about sponsor M and A. 0:10:27.920 --> 0:10:29.600 And when they're talking about sponsor M and A, they're 0:10:29.600 --> 0:10:32.800 really talking about reopening in a much greater level of 0:10:32.840 --> 0:10:36.720 activity in the LBO market in particular, and a lot 0:10:36.760 --> 0:10:39.640 of that I think is going to require better backdrops 0:10:39.679 --> 0:10:43.280 overall in the equity capital markets for IPOs and exits, etc. 0:10:44.040 --> 0:10:48.120 But from an IG perspective, we've had a fairly stable 0:10:48.200 --> 0:10:52.360 and consistent base of issuance every year that's been made 0:10:52.480 --> 0:10:56.600 up of acquisition financing of corporate to corporate all cash 0:10:56.720 --> 0:10:59.560 or significant cash components, and this has been no exception. 0:11:00.200 --> 0:11:02.360 So it's been great to see some M and A 0:11:02.440 --> 0:11:06.200 transactions on the docket. It's great to see some backlog 0:11:06.240 --> 0:11:09.320 and some inquiry and our bridge financing desk is busy 0:11:09.480 --> 0:11:13.120 and active and spending time looking at options and opportunities. 0:11:13.559 --> 0:11:17.720 There's never been more liquidity in the bridge financing market. 0:11:17.920 --> 0:11:21.440 There's never been a greater amount of capital available to 0:11:21.640 --> 0:11:24.320 ig borrowers in the bridge financing market to go and 0:11:24.320 --> 0:11:30.800 do very substantial dream deals etc. Obviously, the regulatory environment 0:11:30.960 --> 0:11:37.440 will prevent there being significant consolidation within industries and probably 0:11:37.559 --> 0:11:42.800 will prevent some international cross border consolidation from taking place. 0:11:43.280 --> 0:11:46.200 But even with the headwinds that have been with the 0:11:46.880 --> 0:11:51.040 existing A disposition towards M and A from a regulatory perspective, 0:11:51.520 --> 0:11:53.600 plenty of volume and plenty of activity. And it's been 0:11:53.679 --> 0:11:55.600 a great addition to the calendar this year. 0:11:56.480 --> 0:11:59.400 So trillion and a half next year, just to quote, 0:11:59.559 --> 0:12:01.520 wash your face, Yes, just to wash your face. You're 0:12:01.520 --> 0:12:04.080 adding some M and A and some other stuff. I mean, 0:12:04.200 --> 0:12:05.840 we're on track to set a new record. Then all 0:12:05.840 --> 0:12:06.880 the time next year. 0:12:06.760 --> 0:12:08.680 You think I don't know about that. I mean we 0:12:08.720 --> 0:12:10.880 came close to two trillion coming out of COVID in 0:12:11.080 --> 0:12:14.640 twenty twenty. I said one point six is will probably 0:12:14.679 --> 0:12:16.520 be more or less what we finish up this year. 0:12:17.080 --> 0:12:18.319 So I think in and. 0:12:18.280 --> 0:12:20.240 Around one point six maybe one point seven as I 0:12:20.320 --> 0:12:22.559 kind of think about next year is a very early look, 0:12:23.320 --> 0:12:27.360 so maybe some modest growth. Look as mentioned like economic 0:12:27.400 --> 0:12:32.000 activities robust, there's a lot of infrastructure financing that needs 0:12:32.200 --> 0:12:34.240 to take place, There's a lot of growth in the 0:12:34.280 --> 0:12:37.080 economy that needs to take place, as well as all 0:12:37.120 --> 0:12:40.040 of the refire that I'm mentioning. So I think we 0:12:40.080 --> 0:12:43.320 can be modestly up and maybe it's one seven five, 0:12:43.360 --> 0:12:45.880 maybe it's ten percent up on this year, but I 0:12:45.920 --> 0:12:46.720 think it will be an up. 0:12:46.640 --> 0:12:49.360 Year, right, But on a net basis, it's still quite small, 0:12:49.559 --> 0:12:52.120 quite small. It's small, and that's going to keep spreads tight. 0:12:52.160 --> 0:12:55.840 It's going to keep usue concessions presumably very slim, is it. 0:12:56.200 --> 0:13:00.760 So I think that the spreading so I would expect 0:13:01.640 --> 0:13:04.760 my personal view around spreads as we think about the 0:13:04.800 --> 0:13:08.079 next kind of fifteen eighteen months is it's going to 0:13:08.080 --> 0:13:10.480 be another low volt year. It's been a very low 0:13:10.559 --> 0:13:14.800 vall year from a spread perspective. There's been plenty of 0:13:14.800 --> 0:13:19.160 corporate activity from an earnings perspective that's helped to ensure 0:13:19.720 --> 0:13:22.880 that earnings are robust and therefore leverage remains kind of 0:13:22.920 --> 0:13:26.000 well contained, so no one's really kind of tripping leverage 0:13:26.000 --> 0:13:29.679 bands and so on. So credit quality in the IG 0:13:29.880 --> 0:13:34.480 market has been very robust. Obviously, a high yield environment 0:13:34.520 --> 0:13:38.040 has been attractive for capital inflows, especially the longer part 0:13:38.080 --> 0:13:40.960 of the curb, especially some of the nuity writers that 0:13:41.000 --> 0:13:43.800 you guys have covered and spoken about and written about 0:13:43.840 --> 0:13:47.079 extensively as well. So I think that we're going to 0:13:47.120 --> 0:13:52.200 get another low vol year overall in credit, so long 0:13:52.320 --> 0:13:56.400 as economic activity remains as robust as it has. You 0:13:56.480 --> 0:13:59.520 kind of think about twenty twenty four, we've only really 0:13:59.559 --> 0:14:04.160 had a couple of instances where there's been some real 0:14:04.280 --> 0:14:06.840 credit spread vol One was in June when we had 0:14:06.840 --> 0:14:09.960 the surprise snap French election called everyone in the US 0:14:10.000 --> 0:14:13.480 suddenly got very very familiar with bundo at spreads and 0:14:13.480 --> 0:14:15.640 what that meant in terms of direction of travel for 0:14:15.920 --> 0:14:19.040 credit and European capital markets, etc. And then the second 0:14:19.080 --> 0:14:22.440 bount of volatility in August after the July payroll reports 0:14:22.440 --> 0:14:24.480 and again coming back to the these defect behind the 0:14:24.480 --> 0:14:27.120 curve et cetera, et cetera. Both of those were pretty 0:14:27.120 --> 0:14:31.840 short lived. So hard to envisage there being much in 0:14:31.840 --> 0:14:35.600 the way of credit spread vole and from a concession perspective, 0:14:36.840 --> 0:14:41.400 I think also a function of overall levels, like generally 0:14:41.440 --> 0:14:47.320 concessions will be low in robust, low vol environments. I 0:14:47.360 --> 0:14:54.720 also think that concessions have structurally been able to move lower. 0:14:56.280 --> 0:15:01.040 I think because of the real significant shift in the 0:15:01.080 --> 0:15:04.880 market structure of investment grade corporate credit that's developed over 0:15:04.880 --> 0:15:07.880 the course of the last five to seven years, particularly 0:15:07.920 --> 0:15:10.200 with respect to liquidity. 0:15:11.400 --> 0:15:13.560 On the spread. Though, I'm still I mean I always 0:15:13.560 --> 0:15:15.000 ask people this, so you probably heard me say it, 0:15:15.040 --> 0:15:18.040 but still a little bit skeptical of the idea that, 0:15:18.280 --> 0:15:20.800 you know, spreads should be this tight. I mean, I 0:15:20.840 --> 0:15:23.360 know the all in yield question argument, you know, just 0:15:23.440 --> 0:15:25.320 look at the yield, don't worry about the spread. But 0:15:25.360 --> 0:15:27.280 that has got people into trouble in the past. And 0:15:27.280 --> 0:15:29.920 if you look at the difference between spreads, you know, 0:15:30.240 --> 0:15:32.720 single aid to double A for example, that's got very 0:15:32.840 --> 0:15:35.080 very tight. So it seems like there's a little bit 0:15:35.120 --> 0:15:36.960 of indiscriminate buying. I mean, I think it's more on 0:15:37.000 --> 0:15:39.560 the leverage side in the IG side, But do you 0:15:39.880 --> 0:15:42.520 not feel that the investors should be paying a bit 0:15:42.520 --> 0:15:43.720 more attention to spreads. 0:15:44.200 --> 0:15:47.280 I mean, it doesn't feel bubbily to me. We've seen 0:15:47.400 --> 0:15:52.200 instances before where the technicals of the market have really 0:15:52.320 --> 0:15:57.360 outweighed the fundamentals and the requirement to invest, and that's 0:15:57.520 --> 0:16:01.720 driven i think spread levels to what historically have been 0:16:01.720 --> 0:16:06.120 maybe artificially tight. This move feels more sustainable, and it 0:16:06.160 --> 0:16:10.920 feels more real, and it feels more rational and reasonable. 0:16:11.320 --> 0:16:13.920 So I'm a little bit less concerned. And by the way, again, 0:16:14.680 --> 0:16:17.000 it's the inverse of what we talked about a moment 0:16:17.080 --> 0:16:20.640 ago about the inverted yeld curve driving issuers to want 0:16:20.640 --> 0:16:23.480 to finance and then part the money in cash. From 0:16:23.520 --> 0:16:27.240 an investor's point of view, the opportunity cost of not 0:16:27.480 --> 0:16:31.200 being invested in an inverted yield curve is also low, 0:16:31.560 --> 0:16:34.680 so they can hide out in short dated instruments and 0:16:35.000 --> 0:16:40.280 earn incremental carry versus longer duration. So I think it's 0:16:40.280 --> 0:16:44.200 a little different in this environment, and I'm less concerned 0:16:44.720 --> 0:16:48.240 about that overall. Look, the reality is you go back 0:16:48.240 --> 0:16:51.440 on very very long time series whenever you see credit 0:16:51.480 --> 0:16:54.880 spreads get to these kinds of levels, and they don't 0:16:54.920 --> 0:16:58.200 get here very often. They bumble around for quite some time, 0:16:58.240 --> 0:17:01.200 and then there's some exogrenu shock that moves them out 0:17:01.320 --> 0:17:04.280 in a material manner. And we could spend like the 0:17:04.320 --> 0:17:07.160 next seventeen hours chatting about what we think that exigent 0:17:07.200 --> 0:17:09.560 a shock is going to be. And I'm ninety nine 0:17:09.560 --> 0:17:12.440 percent confident we won't get it right as to what does. 0:17:12.480 --> 0:17:14.720 Ultimately cause spreads to widen. 0:17:15.920 --> 0:17:18.800 But I think that ordinary course of business, I find 0:17:18.840 --> 0:17:21.040 it difficult to see too many clouds on the horizon. 0:17:21.080 --> 0:17:23.920 There's been periods when we've been worried about are we 0:17:23.960 --> 0:17:25.840 going to tip over into recession? Are we really going 0:17:25.880 --> 0:17:27.600 to be able to have a soft landing. There's been 0:17:27.640 --> 0:17:29.760 periods where we've been worried about the consumer and the 0:17:29.760 --> 0:17:32.439 strength and the resilience of the consumer. There's been periods 0:17:32.440 --> 0:17:35.720 where we've been worried about the labor market, obviously notably 0:17:35.960 --> 0:17:39.159 in the summer. We continue to climb these walls of 0:17:39.200 --> 0:17:40.919 worry very very effectively. 0:17:41.680 --> 0:17:42.000 Got it. 0:17:42.040 --> 0:17:45.480 And then you talked about, you know, when we talk 0:17:45.480 --> 0:17:47.960 about like private credit, that's the big buzzword, you know, 0:17:48.560 --> 0:17:51.680 and then maybe the perception is that's more for levered companies, 0:17:51.720 --> 0:17:53.919 but you know, then again you have these apollo you know, 0:17:53.960 --> 0:17:57.359 talking about creative solutions for IG companies. So how do 0:17:57.400 --> 0:18:00.399 you see you know, folks like that in the IgA space. 0:18:00.440 --> 0:18:03.280 Private credit are they front of these Are they you know, 0:18:03.320 --> 0:18:06.480 another source of financing for you know, some of these 0:18:06.800 --> 0:18:09.160 companies that you might have done bound deals with or 0:18:09.400 --> 0:18:11.639 do you see them as maybe potential buffers right for 0:18:11.960 --> 0:18:15.360 these potential cases of volatility. It's another tool set that 0:18:15.400 --> 0:18:17.640 these companies have to get some financing. 0:18:18.080 --> 0:18:21.199 Yeah, So I think there's plenty of places that private 0:18:21.200 --> 0:18:26.040 credit will grow and will coexist with the traditional banking sector. 0:18:26.720 --> 0:18:30.359 And by the way, we will see in USIG this 0:18:30.560 --> 0:18:35.440 year record volume of issuance from BDC's part of the 0:18:35.480 --> 0:18:39.040 private credit extension that goes on in the marketplace. They 0:18:39.040 --> 0:18:42.159 obviously need to finance themselves. We're providing that there's going 0:18:42.200 --> 0:18:44.280 to be twenty to twenty five billion dollars of supply 0:18:44.840 --> 0:18:47.880 from an industry that from a capital markets perspective, it 0:18:47.920 --> 0:18:50.719 didn't really exist up until kind of the last kind 0:18:50.760 --> 0:18:55.240 of five six years or so in a meaningful way. Obviously, 0:18:55.240 --> 0:18:56.960 private credit has a role to play in the leverage 0:18:56.960 --> 0:19:03.400 finance markets. We've seen that especially for sectors or leverage 0:19:03.480 --> 0:19:09.160 levels the regulated banking sector are unable to lend into 0:19:09.359 --> 0:19:13.879 because of regulatory reform. So that's natural shift of lending 0:19:13.960 --> 0:19:17.560 risk outside of the banking sector. And then obviously there's 0:19:17.600 --> 0:19:20.600 a lot of asset based finance and other types of 0:19:20.680 --> 0:19:23.439 private credit lending that have been taking place. Some of 0:19:23.480 --> 0:19:25.640 them have been on large cap corps who have looked 0:19:25.640 --> 0:19:28.000 at kind of ring fence certain assets. A lot of 0:19:28.000 --> 0:19:30.960 it has been on smaller corporates similarly looking to ring 0:19:31.000 --> 0:19:33.719 fence pool of assets or look at single assets and 0:19:33.800 --> 0:19:39.359 finance them in private markets with a with a credit 0:19:39.440 --> 0:19:43.040 rating that gets to IG for the nic reasons required 0:19:43.040 --> 0:19:45.959 for private credit lenders, but the credit profile looks very, 0:19:46.000 --> 0:19:49.600 very different to what's in the public IG markets. So 0:19:50.440 --> 0:19:55.520 am I worried about the growth in private credit taking 0:19:55.600 --> 0:19:59.600 a bite out of what is traditionally financed in global 0:19:59.600 --> 0:20:03.480 investment grade corporate bond markets. No. I think there'll be 0:20:03.560 --> 0:20:06.560 some portions of balance sheets that will get financed. I 0:20:06.560 --> 0:20:09.960 think very little of it will be direct to investment 0:20:10.000 --> 0:20:13.520 grade corporates, or at least direct to investment grade corporates 0:20:13.520 --> 0:20:17.879 that typically would have otherwise financed in public markets. I 0:20:17.960 --> 0:20:20.520 just think it's fishing in a different pond, and as 0:20:20.520 --> 0:20:22.880 a result, I think it will coexist very very nicely 0:20:23.320 --> 0:20:25.720 with the rest of the credit providers that are out 0:20:25.760 --> 0:20:29.280 there in the public markets, whether it be ig levered 0:20:29.400 --> 0:20:29.960 or otherwise. 0:20:30.200 --> 0:20:33.440 Got it. And then you had mentioned regulation in there, right, 0:20:33.480 --> 0:20:37.359 and some of the regulation pushing some of the lending 0:20:37.400 --> 0:20:39.520 that the banks used to do more to private credit. 0:20:39.560 --> 0:20:42.240 But then you know, buzzle endgame. I'll just throw it 0:20:42.240 --> 0:20:44.800 out there. It's a regulation that you know, not loved 0:20:44.840 --> 0:20:47.480 in the industry. Might see some pullback, or you might 0:20:47.520 --> 0:20:50.000 even see kind of a total upbending, right if we 0:20:50.040 --> 0:20:54.159 get Trump for president. But I think a lot of 0:20:54.160 --> 0:20:56.520 this stuff maybe pertains more to the trading side of 0:20:56.520 --> 0:21:00.199 the business. But how about in IG financing. Is that 0:21:00.640 --> 0:21:04.200 any concerns there any if the regulation were to kind 0:21:04.200 --> 0:21:06.880 of go through, is that really an impact at all, 0:21:06.920 --> 0:21:10.280 like the DCM side and an IG or is it 0:21:10.320 --> 0:21:13.160 more kind of on that trading side and capital intensive side. 0:21:13.800 --> 0:21:16.200 I'm not convinced that it's going to have a significant 0:21:16.200 --> 0:21:21.800 impact on global financing markets, global capital markets, global IG financing. 0:21:22.240 --> 0:21:24.680 Like we'll look at all of our businesses that we run, 0:21:25.880 --> 0:21:28.160 every single business that we look at, we look at 0:21:28.160 --> 0:21:30.639 the capital that gets attributed to those businesses. We look 0:21:30.640 --> 0:21:33.679 at what the return characteristics of those businesses are on 0:21:33.720 --> 0:21:37.560 a standalone and on a related ancillary basis, and will 0:21:37.600 --> 0:21:40.840